European shares close at six-week high on expected China stimulus

By Sruthi Shankar and Johann M Cherian

(Reuters) -European shares closed at their highest levels in six-weeks on Monday, led by mining and luxury stocks, after a promise of renewed stimulus to support China’s slowing economy.

The pan-European STOXX 600 index edged up 0.1%, and notched its eighth consecutive session of gains.

China-exposed miners in Europe rose 3.2% and the index logged its biggest one-day rise in more than a month after the Politburo was quoted as saying that the top metals consumer will adopt an “appropriately loose” monetary policy next year as part of steps to support economic growth, marking the first such shift towards loosening since 2010.

Stocks of luxury companies that earn a substantial amount of their revenue from China, such as LVMH and Kering (EPA:PRTP), added over 3% each to lift France’s CAC 40 index for the eight-straight day.

It closed up by 0.7%, further trimming its annual declines to less than 1%.

However, political uncertainty prevailed with President Emmanuel Macron yet to name a new prime minister, while the far-right National Rally (RN) suffered a surprise by-election loss late on Sunday.

“With (former Prime Minister Michel Barnier’s) push for higher corporate taxes now unlikely to move forward, it appears to have provided temporary relief to equities. Investors have seemingly capitalised on discounted valuations,” said Prashanth Manoharan, head of execution consulting in EMEA at Liquidnet.

“That said, the bigger picture remains challenging. France’s underlying economic challenges remain, with a significant deficit and no approved budget in place.”

The German DAX slipped 0.1%, having touched a record high earlier in the session.

Meanwhile, energy stocks also rose 2.1%, in tandem with oil prices after the fall of Syrian President Bashar al-Assad, raising fears of increased instability in a region already gripped by war.

Europe’s aerospace and defence index dropped 1.3% to a one-week low.

Traders were looking ahead to U.S. inflation data on Wednesday to gauge the pace of the Federal Reserve’s potential rate cuts, while the European Central Bank is widely expected to lower rates by 25 basis points on Thursday.

Among individual stocks, Banco BPM rose 2.2%, while its suitor UniCredit dipped 1.2% after Credit Agricole (OTC:CRARY) said it was poised to raise its stake in Banco BPM.

German meal-kit company Hellofresh fell 9.8%, with traders citing a report about a U.S. probe over allegations of child labour.

CompuGroup Medical (TASE:PMCN) soared 31.4% after the German provider of healthcare software said it was in advanced talks to be acquired by CVC Capital Partners (WA:CPAP) for a potential 22 euros ($23.24) per share.

Vivendi (OTC:VIVHY) closed up 1.2% after shareholders approved the breakup of the French media conglomerate.